Liz Truss, UK prime minister, is to hold a press conference on Friday to confirm a humiliating U-turn on her mini-Budget, as she prepares to axe large parts of the £43bn package of unfunded tax cuts.
Chancellor Kwasi Kwarteng arrived back in London from IMF talks in Washington on Friday meeting and headed straight to Downing St to finalise details of the retreat.
Among the measures expected to be reversed is an £18bn corporation tax cut – Kwarteng had planned to reverse a proposed increase next April from 19 per cent to 25 per cent.
Government bonds — at the centre of the turbulence that followed Kwarteng’s “mini” Budget last month — have already staged a recovery from the lows of the week as markets increasingly anticipate a U-turn on taxes.
Gilts extended a rally from Thursday into Friday morning, with the yield on the 30-year yield bond down 0.24 percentage points to 4.31 per cent as its price rose sharply. The pound slipped 0.4 per cent to $1.124 against the dollar, trimming a rally overnight that had sent it as high as $1.137.
However, a Bank of England emergency bond-buying programme to shore up gilt-exposed pension funds expires on Friday, with investors concerned that if the government does not roll back its tax cuts, more turbulence could follow.
The market chaos has prompted many conservative MPs to openly criticise Truss’s leadership and speculate on whether her premiership will survive the coming months.
“The problem is she’s only got around 25 per cent of the parliamentary party backing her — if that,” one veteran Tory told the Financial Times. “She’s got a lot of disgruntled MPs to manage.”
The government’s record low standing in polls — in one survey the Conservatives have fallen to 19 per cent with Labour enjoying a 34 point lead — has increased the pressure from Tory MPs for Truss to row back on her economic plans.
One of the chief options the government is exploring is to reverse Kwarteng’s plan to scrap an increase in corporation tax next year.
Mel Stride, chair of the Treasury select committee, argued on Friday that if the government failed to carry out a U-turn, it could again be punished by the markets.
“If it doesn’t happen, then the markets may have an adverse reaction to that,” he told the BBC. “So my advice to the chancellor would firmly be, ‘Do it, do it now, make sure it’s something significant, not just nibbling at the edges but something that’s going to be firm, bold and convincing, and do it as soon as possible.’”
Conservative peer Lord Ed Vaizey added that a U-turn was now “inevitable”.
“What is now being kind of mooted is that there will be some sort of compromise that can still be presented as radical economics,” he said, speaking on Sky News.
As the government sought to maintain its public message, trade minister Greg Hands said on Friday that the prime minister and chancellor were “absolutely determined to stick to the growth plan”. He told LBC radio: “There are absolutely no plans to change anything, except for the fact that there is going to be a medium-term fiscal plan.”
Kwarteng has up to now said he will announce that plan — when he is due to explain how he intends to reduce debt — on October 31 alongside forecasts from the Office of Budget Responsibility. But pressure has steadily built on the government to act more quickly.
One former cabinet minister argued that Truss’s recent missteps were due to a lack of experience in her core team. “Feels as though there are not enough grown-ups in the room,” they said.
Some senior backbenchers have floated the possibility of replacing Truss with a joint ticket of former chancellor Rishi Sunak and Penny Mordaunt, leader of the Commons.
Former culture secretary Nadine Dorries pushed back against the suggestion on Twitter, writing: “It’s a plot not to remove a PM but to overturn democracy”.
